Don’t Be Fooled By Corporations: How To Spot Greenwashing

Today’s world is big on environmental, governance, and social issues as we try to achieve more sustainable solutions to our current problems. Therefore, companies that produce different product types have been using this highly valued phenomenon to market their businesses.

It is not uncommon to come across companies or investment firms claiming to be green or ethical. Everyone now wants to be associated with greenness, which forces some companies to misrepresent the facts and label themselves green when they are not.

Therefore, it is essential to be keen when selecting an investment firm or purchasing any products to know whether they are ethical. Once you start paying attention, you will realize that it is just greenwashing, which is bad for your portfolio if you are socially conscious.

Therefore, the company you use to make your investments matters because it determines whether your money contributes to the betterment of society or is destroyed. It is possible to be funding unethical companies unknowingly, but it is no excuse because you should be actively involved in knowing where your money goes.

How To Spot Greenwashing When Investing

1.   When Ethical Investing is Just One of Many Other Types of Investing

It is easy to be involved in unethical investment options when you have a long list of different investment types. That is different for a company that exclusively does ethical investing. An investing firm is essential to you as an investor because you are trusting them with your money.

Therefore, it is only fitting that they do as you would wish with the money. Greenwashing is an investment firm when it lists ethical investing among other investment opportunities to try and convince you that they only focus on socially conscious investing.

Pay close attention to all other investment types before investing with a company to see whether they actually do ethical investing or it is just greenwashing. I do not think you want to unknowingly be part of any investments hurting people or the environment, whether it is your community or not.

2.   Companies That Appear to Pick Only The Best Socially Responsible Companies

Picking only the best companies might seem like a good thing when you look at it on the surface, but deep down, it might be a clever way to hide greenwashing. Most awards and rating companies do not do their due diligence when ranking companies; sometimes, it is not even a fair selection.

That puts companies that are not actually doing what they are portrayed to do at the top, leaving other great companies that better deserve the recognition. As much as some of the recognition is genuine and portrays what is happening on the ground, you cannot know that by just reading tabloids.

Therefore, you should be very careful when your portfolio only has top-performing companies because that may not be the case. Go deeper into the issue and investigate the companies to see whether they are actually what they say they are.

Also, there should be a fair inclusion of high-performing companies and companies that are not yet there but are making an effort to go green or ethical. A portfolio that looks like that is more practical and could be the one that shows the actual picture, while the rest are all greenwashing.

3.   Passing The Social Responsibility Research Onto The Client

It is a plus sometimes when a company wants the client to have it their way because it shows that the company wants to involve the client and not disregard their contribution. However, investing is different. The investment firm should be the one to do extensive research and come up with legit ethical companies you can have on your portfolio.

That is partly because the investment firm is more in the business of knowing such information than a client who probably has no time to do extensive research. They are also in a better position to spot greenwashing than you are because they have industry experience and probably know what to look for.

As much as sometimes the firm could have your best interests by asking you to provide socially responsible companies that you think should be in your portfolio, they should not leave it all up to you. They should guide you into making the right decision regarding ethical investing because you trust them with your money.

4.   Using The Negative Screen Approach

The negative screen approach involves excluding or removing the company involved in activities that are automatically considered sinful, like gambling and alcohol. That may look like the right move, but it only paints half the picture. Most people might automatically look for these kinds of companies in a portfolio to gauge how socially responsible it is and forget that there is more than goes into social responsibility.

You might miss instances of greenwashing because you are so focused on the traditionally sinful companies. Do not let the exclusion of these companies fool you into thinking that your portfolio is now ethical. Make sure that each company that makes it to your portfolio is ethical because even a company that does honest work like making candy can still be unethical.

Conclusion

Greenwashing is so common nowadays that you cannot tell which companies are genuinely responsible and which ones are not. It requires the effort and dedication of an investment firm to help you make the right choice when it comes to your investments. An excellent investment firm will go the extra mile to verify whether a company is actually ethical or they are just greenwashing.

However, many other investment firms will focus more on money and forget social responsibility. Investing with such companies makes you as guilty as they are, whether you know about it or not. It would be best if you were intentional about where you put your money to ensure that every investment you make is making this world a better place. You better do your due diligence in your next investment portfolio.